Urbanization and the Good News About World Poverty

The history of humanity is a history of poverty. This is illustrated in the work of University of California, Davis economist Gregory Clark. According to Clark (Farewell to Alms: A Brief Economic History of the World): “While even before the Industrial Revolution, small elites had an opulent lifestyle, the average person in 1800 was no better off than his or her ancestors of the Paleolithic and Neolithic.”

Cities and Prosperity

Over the past two centuries, standards of living have risen strongly and poverty has been reduced, especially in the more developed world. Cities are much of the difference, as they have attracted rural residents to the jobs made possible by technological and commercial advancements.

In 1800, less than 10 percent of the world’s population lived in urban areas. In 2015, United Nations data indicates urbanization will reach nearly 55 percent. The connection between urbanization and affluence is illustrated by a 10 times increase in the world gross domestic product per capita between 1820 and 2010 (inflation adjusted, according to Angus Maddison project data). Yet, for most of the last two centuries, progress toward greater affluence and poverty reduction has been focused in more developed countries.

Three Decades of Progress

Today, even less developed nations are making great strides in the struggle against poverty. The World Bank uses per capita daily income of $1.25 or less to indicate extreme poverty (2005$, adjusted for purchasing power parity). In 1981, more than half of the less developed world’s population — approximately two billion people — lived in extreme poverty. By 2011, this figure had been reduced to 17 percent, or just above one billion people (Figure 1). Today, 950 million fewer people live in extreme poverty than in 1981, a reduction equal to three times the total U.S. population.

The most substantial progress has been in the East Asia and Pacific region. Since 1981, extreme poverty levels have declined from 78 percent to 8 percent. In 1981, 1.1 billion people in the East Asia and Pacific region lived in extreme poverty, a figure that dropped to 160 million in 2011 (Figure 2).

There was also a huge decline in South Asia, where the extreme poverty rate dropped from 61 percent in 1981 to 25 percent. In 1981, 570 million South Asians were in extreme poverty, compared to 400 million in 2011.

There were also substantial reductions in three other regions, where 1981 extreme poverty rates were much lower (the Middle East and North Africa, Latin America and the Caribbean, and Europe and Central Asia).

The Sub-Saharan Africa region was the one exception to this progress. Despite a modest reduction in the extreme poverty rate, a more than doubling of the population drove the extreme poverty population up from 210 million to 415 million. However, there are more recent are signs of hope. Virtually all of Sub-Saharan Africa’s extreme poverty rate reduction occurred after 2005. This, combined with increasing urbanization, and improving economic performance indicates the potential for more progress.

Largest National Poverty Reductions

Over 30 years, the largest national declines in extreme poverty have been in East Asia and South Asia. Reductions in five nations alone lifted more than 1 billion people out of extreme poverty. The largest decline was in China, where extreme poverty was reduced by 753 million people. China’s extreme poverty rate fell by more than nine-tenths, from 84 percent to six percent. In India, the reduction was 126 million. Indonesia registered a decline of 66 million. Vietnam reduced extreme poverty population 44 million. Vietnam’s extreme poverty rate was reduced even more than China’s (from 89 percent to five percent). Pakistan’s extreme poverty population was reduced by 37 million (Table).

Between 2005 and 2011, each of these countries has continued to reduce both extreme poverty rates and numbers. They have been joined by Bangladesh, where extreme poverty declined 13 million. Stronger performance in Sub-Saharan Africa is indicated by Tanzania, where extreme poverty declined eight million.

A Good Start

The United Nations forecasts further increases in world urbanization, especially in the less-developed world. Given the close connection between higher incomes and greater urbanization, extreme poverty rates should continue to decline. Continuing trade liberalization, typified most recently by the APEC Beijing agreement to study a Free Trade Area of the Asia-Pacific, could eventually lead to more job-creating investment in the less developed world. Clearly, much more progress is necessary. But nearly a billion fewer people in extreme poverty is a good start.